The 2017 tax bill contained provisions that allowed employees in private companies that provide nonqualified stock options and restricted stock units to at least 80% of their workforce to defer taxation on the awards until up to five years after termination. The law was intended to prevent employees from ending up with grants that were taxed even though they resulting shares could not yet be sold.

The law's restrictions have meant it has had limited appeal, but in Revenue Notice 2018-17, the IRS has set an even higher bar. Most important, the IRS followed the literal language of the law and required that 80% or more of the workforce get grants annually. Many smaller companies do not do that. Companies also have to escrow shares sufficient to pay the taxes that will be due in as much as five years, and employees have to agree to that. The IRS did let companies opt out of the tax treatment so that they do not inadvertently fall under it when, even though they qualify, they do not want to offer this potential tax benefit to employees. Bruce Brumberg of MyStockOptions.com has written a useful, detailed explanation of the new regulations.